Brand-Level Effects of Stockkeeping Unit Reductions

Abstract

When retailers make product assortment changes by eliminating certain stockkeeping units (SKUs), how does this affect sales of individual brands? This is the main question the authors address in this article. Using data from an online retailer that implemented a permanent systemwide SKU reduction (SR) program, the authors investigate how the program affected various components of purchase behavior for individual brands. They find substantial variations in the SR effects across brands, categories, and consumers. They explore possible drivers for these differences and find that higher-market-share, higher-priced, and more frequently promoted brands tend to gain share and that reduction in the number of sizes, reduction in the number of SKUs, and change in SKU share in the category are important in affecting change in a brand's purchase share after the SR. They also find that SRs lead to an increase in category purchase incidence and quantity for highly state-dependent consumers and frequent buyers but a decrease in category purchase and quantity for mildly state-dependent consumers and infrequent buyers. In addition, SRs tend to cause more changes in brand choice probabilities among consumers of lower state dependence and higher price and promotion sensitivity. These findings are of importance both to retailers wanting to make product assortment changes and to manufacturers affected by them.